Why is Vietnam stage for a thriving start-up scene?
Vietnam is the one of the few remaining communist states in the world but at the same time, it is also home to one of the fastest growing start up scenes in Southeast Asia. Furthermore, 40 million internet users, a fast growing economy as well as a supportive government all play a contributing role. With a 90 million population that is in the middle of an economic boom, young demographics, rising middle income group, growing internet adoption rate, and not to forget investor-friendly policies, larger VC groups are taking an increased interest in the country.
The Ministry of Planning and Investment has drafted a new set of rules which seek to make it easier for local and foreign venture capital funds to operate in Vietnam. The move is the government’s latest effort to achieve its goal to turn the country into a start-up nation with 5,000 tech firms by 2020. According to the draft recently published by the ministry’s Agency for Enterprise Development, the funds can acquire licenses within three days of application and there are no limits on their size.
Up to now, investment funds in Vietnam are managed in accordance with laws on securities investment funds, meaning that they must have a minimum capital of VND50 billion (US$2.2 million), or at least 100 investors. Many private investors or angel investors want to establish venture funds but cannot meet such requirements
Most existing funds are managed by local banks and big companies, such as Vietcombank and state-owned energy giant PetroVietnam. They rarely invest in startups, especially those in their initial stages, and mostly eye projects worth hundreds of thousands of dollars, according to the agency. An exception to this is IDG ventures Vietnam, who is well established in Vietnam and specialises in technology start-ups.
Although foreign funds such as Japan’s CyberAgent Ventures and the US’s 500 Startups have already entered Vietnam, their activities are still somewhat limited by difficulties raising capital.
At least 67 tech start-ups in Vietnam received funding last year, a sharp increase from 28 the year before, according to a report released by Topica Founder Institute. About 26 percent of the deals were in the form of seed funding, mainly provided by foreign investors. Not surprisingly, a lot of these investors are people of Vietnamese origin living abroad. Many are in California which is of course the world’s largest start up hub. Vietnam is currently third in the number of start-ups in Southeast Asia, behind Singapore and Indonesia.
In terms of funding we’re seeing a split in the VC funding strategies in Vietnam. Generally, country-focused investors are mostly interested in angel and seed-stage investments. However, Series A onwards are increasingly being filled by corporate and institutional regional funds. This is a big change from a start-up scene previously dominated by investors from Singapore and Japan who typically prefer to invest at post-seed stages which are less risky to investors.
We at GMO Research are also involved in Vietnam where we have the largest online panel presently available. It’s one our fastest expanding markets and has been for a while now.